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IN THE SUPREME COURT OF THE STATE OF IDAHO

Docket No. 37771

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Appeal from the Seventh Judicial District of the State of Idaho, Bonneville 

County. Hon. Jon J. Shindurling, District Judge.

The decision of the district court granting summary judgment is vacated and 

the case is remanded for further proceedings in accordance with this 

Opinion. 

Alan R. Harrison, Idaho Falls, for appellant.

Holden, Kidwell, Hahn & Crapo, Idaho Falls, for respondent ZBS. Karl R. 

Decker argued.

IDAHO DEVELOPMENT, LLC, a Utah 

limited liability company,

 Plaintiff-Appellant,

v.

TETON VIEW GOLF ESTATES, LLC, a 

Utah limited liability company; 

AMERITITLE COMPANY; ZBS, LLC., an 

Idaho limited liability company; 

DEPATCO, INC., an Idaho corporation; 

SCHIESS & ASSOCIATES, P.C., an Idaho 

professional corporation,

 Defendants-Respondents,

and

ROTHCHILD PROPERTIES, LLC, a Utah 

limited liability company; WESTERN 

EQUITY, LLC, a Utah limited liability 

company; HD SUPPLY WATERWORKS, 

LTD; DOES 1-3, and ALL PERSONS IN 

POSSESSION OF REAL PROPERTY 

DESCRIBED HEREIN,

 Defendants.

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Pocatello, August 2011 Term

2011 Opinion No. 131

Filed: December 12, 2011

Stephen W. Kenyon, Clerk

SUBSTITUTE OPINION. THE 

COURT’S PRIOR OPINION 

DATED NOVEMBER 3, 2011

IS HEREBY WITHDRAWN
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Fuller & Carr, Idaho Falls, for respondent DePatco, Inc. Mark Fuller 

argued.

Beard, St. Clair, Gaffney, P.A., Idaho Falls, for respondent Schiess &

Associates.

____________________________

W. JONES, Justice

I. NATURE OF THE CASE

Idaho Development, LLC (“Idaho Development”) advanced $1,100,000.00 to Teton 

View Golf Estates, LLC (“Teton View”), a joint venture made up of Idaho Development as a 

33.3% owner and Rothchild Properties, LLC as a 66.7% owner. Teton View granted Idaho 

Development a promissory note secured by a deed of trust that specified a set monthly payment 

and stated that the entire amount was to be paid off in ninety days. Idaho Development filed an 

action to foreclose on the deed of trust after Teton View failed to satisfy the promissory note. 

DePatco, Inc., another lienholder on the property, filed a motion for summary judgment to 

recharacterize Idaho Development’s advance as a capital contribution, which was granted. Idaho 

Development appealed, arguing that there was a genuine issue of fact as to whether the entire 

$1,100,000 advance was intended to be a capital contribution. Idaho Development also appealed

a subsequent summary judgment brought by ZBS, LLC, which relied on the recharacterization 

determination in holding that ZBS’ lien on the property had priority over Idaho Development’s

lien. 

II. FACTUAL AND PROCEDURAL BACKGROUND

Idaho Development, LLC (“Idaho Development”) and Rothchild Properties, LLC 

(“Rothchild”) wanted to form a Limited Liability Company known as Teton View Golf Estates, 

LLC (“Teton View”). On February 20, 2008, ZBS, LLC (“ZBS”) transferred real property by 

warranty deed to Teton View with the understanding that Teton View would become operative in 

the upcoming weeks. One day earlier, on February 19, 2008, Teton View granted ZBS a 

promissory note secured by a deed of trust on the property in favor of ZBS. That deed of trust 

secured payment of $640,000 to ZBS, but was not immediately recorded. 

On February 28, 2008, Idaho Development and Rothchild entered into a Joint Venture 

Agreement forming Teton View. Under the terms of the Joint Venture Agreement, Idaho 

Development advanced $1,100,000.00 to the joint venture, “with the understanding that upon the 

funding of the construction loan, Idaho Development shall be repaid the sum of Eight Hundred 
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Thousand Dollars ($800,000).” The remaining sum of $300,000 was to be subordinated to the 

construction loan. Idaho Development made no other advancement to Teton View. Rothchild 

contributed its time, skill, technology and know-how to Teton View. In exchange for Idaho 

Development’s advancement of $1,100,000.00, Idaho Development shared 33.3% of Teton 

View’s profits and losses, while Rothchild shared 66.7% of the company’s profits and losses.

The next day, on February 29, 2008, Idaho Development obtained a promissory note for 

repayment of $1,100,000.00 from Teton View, secured by a deed of trust on the same property as

the ZBS deed of trust.1

 In an effort to compromise ZBS’ and Idaho Development’s conflicting 

interests, Idaho Development agreed to reduce the deed of trust from $1,100,000 to $850,000,

but refused to subordinate its deed of trust behind ZBS. As a result, on March 7, 2008, Idaho 

Development’s deed of trust was amended to an amount of $850,000. On March 10, 2008, both 

Idaho Development and ZBS recorded their deeds of trust, but Idaho Development’s deed of 

trust bears a lower instrument number evidencing that ZBS recorded behind Idaho 

Development.

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Idaho Development’s promissory note called for six percent annual interest with monthly 

payments by Teton View of $5,595.06. It required the balance to be paid in full no later than 

ninety days from the date of the note, or in other words, by May 28, 2008. It also provided that 

Idaho Development was to receive 15% of the net proceeds from each lot sale. Teton View did 

not satisfy the terms of the promissory note. Idaho Development agreed to extend the due date 

on the promissory note until the end of June 2008 in exchange for a $10,000 payment. Again, 

Teton View failed to satisfy the note by the extended deadline, and Idaho Development filed a 

complaint to foreclose its deed of trust against all junior interests. 

In its amended complaint, Idaho Development listed several defendants, including Teton 

View, Rothchild, and ZBS. It also listed Western Equity, LLC (“Western Equity”); Amerititle 

Company (“Amerititle”); DePatco, Inc. (“DePatco”); Schiess & Associates, P.C. (“Schiess”); 

and HD Supply Waterworks, Ltd. (“HD Supply”) as defendants. DePatco worked on the 

property at issue and recorded a lien on the property on October 20, 2008, after both Idaho 

Development and ZBS recorded their deeds of trust. Teton View, Rothchild and Western Equity 

 1 The deed of trust was recorded as Instrument # 1292699 in Bonneville County, Idaho. 

2 Idaho Development’s amended deed of trust was recorded at 12:51 p.m., the same time as ZBS’ deed of trust, but 

Idaho Development’s bears a lower instrument number, # 1292697.
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filed counter-claims against Idaho Development. Those parties stipulated to dismiss those 

claims on August 14, 2009. On January 5, 2010, DePatco filed a motion for partial summary 

judgment seeking recharacterization of Idaho Development’s advancement, or alternatively,

seeking equitable subordination of Idaho Development’s lien to its own. In its Opinion, Decision 

and Order, the district court granted DePatco’s motion and recharacterized the loan as a capital 

contribution, thereby moving Idaho Development’s priority to last in line behind all other 

legitimate creditors, including ZBS, DePatco and Schiess. 

ZBS subsequently filed a motion for summary judgment to establish ZBS’ priority over 

Idaho Development’s claims. Idaho Development opposed the motion, arguing that ZBS had 

agreed to subordinate its claim to Idaho Development after it amended its deed of trust from 

$1,100,000 to $850,000 and thus ZBS should not be given priority. Idaho Development also 

filed a Motion to Reconsider the first summary judgment which had recharacterized the 

advancement as a contribution to capital. ZBS, DePatco, and Schiess entered into an agreement 

to jointly foreclose their liens. Because Teton View failed to appear and answer with respect to 

the claims of ZBS and Schiess, the court entered default judgment against Teton View. Thirdparty defendants, Amerititle and Idaho Title & Trust, Inc., as trustees of the deeds of trust at 

issue in this case, stipulated to entry of judgment. The court entered judgment on May 11, 2010 

establishing that ZBS’ deed of trust, DePatco’s deed of trust and Schiess’ lien, were valid first 

liens on the property. It ordered judgment of foreclosure against Teton View and in favor of 

ZBS, DePatco and Schiess. The district court issued a Rule 54(b) certificate with its judgment, 

allowing that judgment to be appealed to this Court. 

Idaho Development’s Motion to Reconsider was denied on August 30, 2010. Idaho 

Development provided argument on appeal as to why the Motion to Reconsider was improperly 

denied. Although it did not appeal from that order, and the Notice of Appeal was filed almost 

three months before the Motion to Reconsider was denied, Idaho Appellate Rule 17 instructs that 

all interlocutory or final orders entered after the final judgment appealed from shall be deemed 

included on appeal. Nevertheless, given the outcome of this opinion, the Court finds it 

unnecessary to decide whether the Motion to Reconsider was improperly denied. Idaho 

Development filed its Notice of Appeal on June 3, 2010 and properly appealed from the May 11, 

2010 Judgment certified by the Rule 54(b) certificate. 
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III. ISSUES ON APPEAL

1. Whether the district court improperly granted summary judgment by recharacterizing 

Idaho Development’s $1,100,000 advance as a capital contribution?

2. Whether the summary judgment should be affirmed on the alternative basis that equitable 

subordination should be applied?

3. Whether the district court improperly granted summary judgment establishing ZBS’ 

priority over Idaho Development?

4. Whether either party is entitled to attorney’s fees on appeal?

IV. STANDARD OF REVIEW

“When reviewing a grant of summary judgment, this Court applies the same standard

of review used by the district court in ruling on the motion.” Mortensen v. Stewart Title Guar. 

Co., 149 Idaho 437, 441, 235 P.3d 387, 391 (2010). A grant of summary judgment is warranted 

where “the pleadings, depositions and admissions on file, together with the affidavits, if any, 

show that there is no genuine issue as to any material fact and that the moving party is entitled to 

judgment as a matter of law.” I.R.C.P. 56(c). The facts must be liberally construed in favor of 

the non-moving party. Renzo v. Idaho State Dep’t. of Agric., 149 Idaho 777, 779, 241 P.3d 950, 

952 (2010). “The burden of proving the absence of an issue of material fact rests at all times 

upon the moving party.” Blickenstaff v. Clegg, 140 Idaho 572, 577, 97 P.3d 439, 444 (2004). 

“When an action will be tried before a court without a jury, the court may, in ruling on the 

motions for summary judgment, draw probable inferences arising from the undisputed 

evidentiary facts.” Losee v. Idaho Co., 148 Idaho 219, 222, 220 P.3d 575, 578 (2009). 

V. ANALYSIS

A. The District Court Erred in Granting Summary Judgment to DePatco by 

Recharacterizing Idaho Development’s Advance to Teton View as a Capital 

Contribution because there Was a Genuine Issue of Fact as to whether the Entire 

Advance Was Intended to be a Capital Contribution

1. This Court Has Previously Held that Debt Recharacterization of an Advance as a 

Loan or as Capital Contribution Depends on the Intent of the Parties

Debt recharacterization is a tool developed by federal bankruptcy courts as an alternative 

to equitable subordination. Debt recharacterization “rests on the substance of the transaction 

giving rise to the claimant’s demand” instead of the court’s “assessment of the creditor’s 

behavior,” and thus most courts do not require inequitable conduct to be shown in order to apply 

recharacterization. In re Official Comm. of Unsecured Creditors for Dornier Aviation, Inc., 453 

F.3d 225, 232 (4th Cir. 2006); see also In re N & D Props., Inc., 799 F.2d 726, 733 (11th Cir. 
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1986) (applying debt characterization if there was initial under-capitalization of the corporation 

or if no other disinterested lender would have extended credit); In re SubMicron Sys. Corp., 432 

F.3d 448, 456 n.8 (3d Cir. 2006) (identifying several similar multi-factor tests utilized by federal 

courts). In actuality, the label “recharacterization” is somewhat of a misnomer. The real aim of 

the trial court is to make “the determination whether an advance is debt or equity,” which 

“depends on the distinction between a creditor who seeks a definite obligation that is payable in 

any event, and a shareholder who seeks to make an investment and to share in the profits and 

risks of loss in the venture;” thus the court really is engaging in a ‘characterization’ rather than a 

‘recharacterization.’ Bauer v. C.I.R., 748 F.2d 1365, 1367 (9th Cir. 1984); see also In re 

Airadigm Commc’ns., Inc., 616 F.3d 642, 653 (7th Cir. 2010) (“Recharacterization is a theory, 

adopted by the overwhelming majority of courts to have considered the question, that bankruptcy 

courts may place the proper label of ‘claim’ (generally, debt) or ‘interest’ (equity) on an advance 

of funds, regardless of what the parties call it.”). 

Equitable subordination and debt recharacterization both end up reaching the same result: 

the insider advance is subordinated to the loans of the legitimate outside creditors. However, for 

the purposes of equitable subordination, the subordination itself is the remedy in equity. While

for the purposes of recharacterization, subordination is merely a consequence of the loan no 

longer being characterized as a loan, but as a capital contribution, thereby necessarily 

downgrading its priority to the back of the line. As the Tenth Circuit stated:

Recharacterization cases turn on whether a debt actually exists, not on whether 

the claim should be equitably subordinated. In a recharacterization analysis, if the 

court determines that the advance of money is equity and not debt, the claim is 

recharacterized and the effect is subordination of the claim as a proprietary 

interest because the corporation repays capital contributions only after satisfying 

all other obligations of the corporation. In an equitable subordination analysis, the 

court is reviewing whether a legitimate creditor engaged in inequitable conduct, in 

which case the remedy is subordination of the creditor’s claim to that of another 

creditor only to the extent necessary to offset injury or damage suffered by the 

creditor in whose favor the equitable doctrine may be effective.

In re Hedged-Invs. Assocs., Inc., 380 F.3d 1292, 1297 (10th Cir. 2004) (quoting In re AutoStyle 

Plastics, Inc., 269 F.3d 726, 748–49 (6th Cir. 2001) (emphasis in original)); see also In re 

Aradigm Commc’ns., 616 F.3d at 658 (“[W]hen a claim is equitably subordinated, a court 

disregards a party’s formal rights; when a claim is recharacterized, a court determines what those 

formal rights are in the first instance.”). The aim of debt recharacterization is to determine what 
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the transaction actually is, because “persons making capital contributions are not corporate 

creditors.” Tanzi v. Fiberglass Swimming Pools, Inc., 414 A.2d 484, 489 (R.I. 1980).

The district court in the present case utilized the simple and practical approach of the 

Third Circuit, which calls for “a commonsense conclusion that the party infusing funds does so 

as a banker (the party expects to be repaid with interest no matter the borrower’s fortunes;

therefore the funds are debt) or as an investor (the funds infused are repaid based on the 

borrower’s fortunes; hence they are equity).” In re SubMicron Sys. Corp., 432 F.3d 448, 456 (3d 

Cir. 2006). Thus, the “determinative inquiry in classifying advances as debt or equity is the 

intent of the parties as it existed at the time of the transactions.” Id. at 457. “That intent may be 

inferred from what the parties say in their contracts, from what they do through their actions, and 

from the economic reality of the surrounding circumstances. Answers lie in facts that confer 

context case-by-case.” Id. at 456. 

The Court similarly characterized advancements as capital contributions rather than loans 

in two cases cited by the district court, Lettunich v. Lettunich, 141 Idaho 425, 111 P.3d 110 

(2005) and Vreeken v. Lockwood Engineering, B.V., 148 Idaho 89, 218 P.3d 1150 (2009). The 

district court stated, and the Respondents argued, that those cases did not involve “debt 

recharacterization” because the court in those cases determined that the assets were capital 

contributions, rather than loans that should be “recharacterized” as capital contributions. This 

argument misses the purpose of “debt recharacterization” which is to characterize what the 

substance of the advance is, based on the intent of the parties, regardless of what label the parties 

may have put on it. Therefore, it should be recognized that in both Lettunich and Vreeken, the 

Court did “recharacterize” the advances as capital contributions. In essence, this Court has 

already used the Third Circuit’s streamlined common-sense approach in Lettunich and Vreeken. 

Thus, in recharacterizing debt, this Court looks to the true intent of the parties in entering the 

transaction. 

While Idaho case law does not expressly refer to “debt recharacterization” by that same 

term, it seems to have used a practical approach, similar in substance to the one employed by the 

Third Circuit, to determine whether an advance by a shareholder was a valid loan or instead a 

capital contribution. Weyerhaeuser Co. v. Clark’s Material Supply Co., 90 Idaho 455, 461, 413 

P.2d 180, 183 (1966). The court in Weyerhaeuser found that the facts of the case led to the 

conclusion that the shareholders were not creditors of the corporation so as to entitle them to 
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share in the distribution of the corporate assets. Id. Those facts were: (1) the shareholders were 

not listed on the corporate records as creditors; (2) no note was executed; (3) the proceeds of the 

loan were not used by the corporation for corporate purposes; and (4) at least one creditor 

advanced credit to the corporation on the representation that the proceeds of the shareholder loan 

would be available to satisfy the debt, which they were not. Id. Thus, the Court, in essence, 

used its power to place the proper label on the advance, thereby “recharacterizing” it, properly, 

as capital after analyzing the parties’ intent.

2. The District Court Improperly Granted Summary Judgment because there Was 

Conflicting Evidence as to whether All of the $1,100,000 Advance Was Intended 

to be a Capital Contribution

Since this Court has previously held that the test for recharacterization of a debt is to look 

at the intent of the parties, the next step is to determine whether there are any genuine issues of 

fact. Thus, the Court must determine whether the district court’s conclusion that the advance is a 

capital contribution and not a loan is an issue of fact or an issue of law. The Ninth Circuit has

held that the question of whether an advance to a corporation is debt or equity is “primarily 

directed at ascertaining the intent of the parties.” A.R. Lantz Co. v. United States, 424 F.2d 1330, 

1333 (9th Cir. 1970). Because the question of intent is one of fact, the determination as to 

whether to recharacterize an advance as a capital contribution or as a loan is an issue of fact. 

Bauer, 748 F.2d at 1367.

Further, this Court has previously acknowledged in prior cases that the determination that 

an advance is a capital contribution and not a loan is a factual one. Vreeken, 148 Idaho at 109–

10, 218 P.3d at 1170–71 (2009); Lettunich, 141 Idaho at 433, 111 P.3d at 118 (2005). In 

Vreeken, the Court reviewed the district court’s finding of facts following a bench trial, including 

the finding that certain assets were capital contributions instead of loans. Id. The Court found 

that despite some evidence that the assets may have been intended to be a loan, there was 

“substantial and competent evidence,” supporting the conclusion that they were capital 

contributions, namely that they were listed as being owned by the corporation and were being 

used by the corporation in the normal course of business operations. Id. at 110, 218 P.3d at 

1171. In Lettunich, the Court found that although there was conflicting evidence as to whether 

the money advanced to the partnership was intended to be a loan or a capital contribution, the 

district court’s finding that the advance was a capital contribution was supported by substantial 

evidence. 141 Idaho at 433, 111 P.3d at 118. Once again, the determination as to whether the 
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advance was a loan or a capital contribution was treated as a factual finding. Thus, the Court 

finds that the determination made by the district court in summary judgment that Idaho 

Development’s advance was a capital contribution and not a loan was a factual determination. 

In ruling on motions for summary judgment without a jury, the court may draw probable 

inferences from undisputed evidentiary facts. Losee v. Idaho Co., 148 Idaho 219, 222, 220 P.3d 

575, 578 (2009) (citing Banner Life Ins. Co. v. Mark Wallace Dixon Irrevocable Trust, 147 

Idaho 117, 124, 206 P.3d 481, 488 (2009)). “Drawing probable inferences under such 

circumstances is permissible because the court, as the trier of fact, would be responsible for 

resolving conflicting inferences at trial. However, if reasonable persons could reach differing 

conclusions or draw conflicting inferences from the evidence presented, then summary judgment 

is improper.” Id. (citing Boise Tower Assocs. v. Hogland, 147 Idaho 774, 779, 215 P.3d 494, 499 

(2009)). Given the standard of review on a motion for summary judgment, prior to a bench trial, 

the district court here improperly granted summary judgment because it made a factual finding 

based on conflicting evidence which was not the most probable inference from the facts before it. 

There are three potential inferences that could have been drawn from the evidence presented by 

both parties: (1) the entire $1,100,000 was intended to be a capital contribution; (2) the entire 

$1,100,000 was intended to be a loan; or (3) part of the $1,100,000 was intended to be a capital 

contribution and part of it was intended to be a loan. Only the first of these inferences would 

warrant the conclusion reached by the district court, characterizing the advance as a capital 

contribution and granting summary judgment. Unless that was the “most probable inference[] to 

be drawn from [the] uncontroverted evidentiary facts” presented at summary judgment, the 

district court erred in granting it. Loomis v. City of Hailey, 119 Idaho 434, 437, 807 P.2d 1272, 

1275 (1991). In this case, the Court finds that the issues were too controverted to ascertain the 

intent of the parties.

The district court acknowledged that there was conflicting evidence as to whether the 

parties intended part or all of the contribution to be a loan or a capital contribution. The court

stated “there is documentation supporting the argument that the parties intended the advance to 

be a loan.” It further noted that the documentation referred to the advance as a loan, and called 

for regular payments and interest on that loan. The district court then went on to recognize that 

“the documentation also contains elements of an equity investment,” noting that Teton View had 

no capital outside of Idaho Development’s advance and that Idaho Development was to receive 
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one third of Teton View’s profits by entering into the Joint Venture Agreement. The lower court

concluded that “[t]he subjective and objective intent of the parties demonstrate that Idaho 

[Development] sought to be both an investor in and a creditor to Teton View.” It then stated that 

because Idaho Development had not differentiated between what money it intended to be used as 

a capital investment and what money was to be treated as a loan, the entire amount was to be 

recharacterized as a capital investment. 

DePatco presented no evidence that the entire $1,100,000 was intended to be a capital 

contribution, other than the fact that Teton View did not have any other initial capital 

contributions aside from Idaho Development’s advance. It is likely, given that it had no other 

capital contributions, that at least a portion of that advance was intended to be used as capital.

Nevertheless, the burden was on DePatco as the movant to show there was no genuine issue of 

material fact that the entire amount was intended to be a capital contribution and thus should be 

characterized as such. See Foster v. Traul, 141 Idaho 890, 893, 120 P.3d 278, 281 (2005). It is 

true that “the non-moving party cannot rely upon bare allegations” but instead “must establish 

the existence of an issue of fact with regard to the challenged elements” where “a motion for 

summary judgment is supported by an evidentiary showing.” Rincover v. State Dep’t of Fin., 

Sec. Bureau, 128 Idaho 653, 659–60, 917 P.2d 1293, 1299–300 (1996). 

However, the evidence presented here by Idaho Development, including the language in 

the Joint Venture Agreement regarding repayment of part of the loan upon the funding of a

construction loan, as well as the promissory note secured by the deed of trust providing for 

monthly payments of a specified amount plus interest to be completed within ninety days, 

provides strong evidence that at least part of the advance was intended to be a loan. The 

evidence presented at summary judgment also showed that Idaho Development amended its deed 

of trust from $1,100,000 to $850,000, rendering the remaining $250,000 unsecured. This could 

tend to show that the $250,000 left unsecured was intended to be a capital contribution. 

Similarly, Idaho Development alleges that an account was set up by Teton View in the amount of 

$135,000 to cover its likely business expenses. The evidence in the record shows that Teton 

View opened an account with Key Bank and deposited $135,000 into that account on March 10, 

2008. Idaho Development was paid interest on its loan out of this account. Several other 

payments were made by Teton View from this account for business expenses including 
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engineering, irrigation application fees, excavation, surface drainage, wages, traffic control, and 

appraisals. This could also tend to show that $135,000 was intended to be capital. 

The evidence here is similar to the type that the District of Delaware confronted in In re 

SubMicron Systems, Corp., 291 B.R. 314 (D. Del. 2003). In that case, the court found that the 

advances the corporation received from an insider would not be recharacterized as equity, even 

though, at the time the advances were made, the corporation was already severely 

undercapitalized, because (1) the intent of the parties was to create debt; (2) the advances were 

characterized as loans on the corporate books; and (3) the advances had fixed maturity dates and 

rates of interest. Id. at 325–26. The Third Circuit affirmed the court’s determination that the 

debt should not be recharacterized, holding that the court’s factual determination was not clearly 

erroneous. SubMicron Systems, 432 F.3d at 457. Here, every document pointed to by the 

parties, including the Joint Venture Agreement, the promissory note, and the deed of trust, call 

the advance a loan, or at the least an advance that is to be repaid. The loan had a fixed monthly 

payment, and it had an original maturity date of ninety days (later extended another thirty days). 

As in SubMicron Systems, this Court finds that the evidence was at least conflicting as to 

whether the entire advance was intended to be a capital contribution. The party seeking to 

recharacterize the advance carries the burden of proof as to showing how much of the 

advancement was intended to be a capital contribution. Therefore, the district court erred in 

shifting the burden of proof from the movant challenging the characterization as a loan onto the 

non-movant party. Idaho Development did not have the burden to prove how much of the 

advance was a loan and how much of it was a capital contribution. Thus, this Court holds that 

the district court erred in granting summary judgment by recharacterizing the entire amount as a 

capital contribution despite conflicting evidence.

B. The District Court Did Not Err In Declining to Apply Equitable Subordination 

DePatco argues that if the Court finds that summary judgment was improperly granted 

because the advance was not properly characterized as a capital contribution, then the Court 

should equitably subordinate Idaho Development’s claim to DePatco’s lien. Idaho Development 

argues that under I.A.R. 15, DePatco may not raise this argument without a cross-appeal because 

the district court rested its summary judgment decision on the debt recharacterization issue. The 

record shows that DePatco raised the equitable subordination issue before the district court. The 

district court declined to apply equitable subordination and instead applied debt 
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recharacterization. DePatco “is not seeking to reverse or vacate the judgment, nor is [DePatco] 

seeking a reversal of finding upon which the judgment is based” such that I.A.R. 15 applies to 

require a cross-appeal. McKay v. Boise Project Bd. of Control, 141 Idaho 463, 468, 111 P.3d 

148, 153 (2005). Rather, DePatco is seeking to affirm the district court’s decision, to 

subordinate Idaho Development’s loan to DePatco’s loan on an alternative basis, that the loan 

should be equitably subordinated if recharacterization was not appropriate. The Court finds that 

Idaho Appellate Rule 15 does not apply and DePatco was not required to file a cross-appeal on 

this issue. 

The district court held that equitable subordination was not the law in Idaho and therefore 

declined to apply it. The court acknowledged that Alaska appeared to be the only state to 

expressly endorse the use of equitable subordination outside of the bankruptcy context, and that 

the vast majority of courts to consider the issue have declined to do so. Because equitable 

subordination is a tool developed and used almost exclusively by the bankruptcy courts, this 

Court declines to create new law by applying it here for the first time. See HBE Leasing Corp. v. 

Frank, 48 F.3d 623, 634 (2d Cir. 1995) (“Equitable subordination is distinctly a power of federal 

bankruptcy courts, as courts of equity, to subordinate the claims of one creditor to those of 

others.”). 

C. The Court Finds that the Advance was Improperly Recharacterized on Summary 

Judgment and Instructs the Court on Remand that any Portion Characterized as a 

Loan Has Priority over ZBS’ Claim 

In its motion for summary judgment, ZBS asserted that its deed of trust was the first and 

paramount lien on the property. Subsequent to the motion, ZBS entered into an agreement with 

DePatco and Schiess, the two other lienholders on the property who had not yet settled, to jointly 

foreclose their liens. Idaho Development was the only party opposing this summary judgment. 

The district court made an oral ruling on the motion, holding that pursuant to the earlier 

summary judgment recharacterizing the entire loan as a capital contribution, there was no interest 

upon which a deed of trust could be based. Therefore, it reasoned that ZBS’ interest could not 

have been subordinated to Idaho Development’s claim because Idaho Development had no 

interest. As the district court recognized, whether ZBS has priority over Idaho Development’s 

claim is dependent on how the Court resolves the first issue in this case. This Court finds that 

the district court improperly granted summary judgment because Idaho Development’s entire 

advance was improperly recharacterized as a capital contribution when there were issues of fact 
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remaining regarding how much of the $1,100,000 was intended to be a capital contribution. As 

such, the Court must look to the priority of the loans to determine the subordination of claims. 

Idaho Development recorded its deed of trust before ZBS, as evidenced by its lower 

instrument number. Because Idaho Development’s loan was recorded first, it had the first right 

to be paid before ZBS. See Blickenstaff v. Clegg, 140 Idaho 572, 580, 97 P.3d 439, 447 (2004) 

(“Because M&D’s deed of trust was recorded before the second U.S. Bank Lien, M&D has the 

right to be paid . . . before U.S. Bank receives any payment on its second loan.”). The facts are 

conflicting on the factual issue as to what amount, if any, of Idaho Development’s advance is 

properly characterized as a loan. Therefore, the Court finds that summary judgment was 

improperly entered when the court recharacterized the entire loan as a capital contribution. The 

Court further instructs the district court on remand that any portion of the advance that was 

intended to be a loan and thus is characterized as a loan, has priority over ZBS’ later-recorded 

deed of trust. Any portion that was intended to be a capital contribution and thus is properly 

characterized as a capital contribution will be last in priority behind all of Teton View’s 

legitimate outside creditors. 

D. Neither Party is Entitled to Attorney’s Fees on Appeal

Idaho Development does not request attorney’s fees on appeal. DePatco, Schiess and 

ZBS request attorney’s fees on appeal under I.C. § 12-121, arguing that Idaho Development 

brought the appeal frivolously, unreasonably, or without foundation. ZBS alternatively requests 

attorney’s fees on appeal under I.C. § 12-120(3), arguing that ZBS’ claim is based on a 

promissory note secured by a deed of trust and is therefore a commercial transaction. Because 

this Court is vacating the district court’s grant of summary judgment, neither DePatco, Schiess 

nor ZBS are prevailing parties on appeal. Thus, “it is not necessary to discuss whether this 

appeal involves a ‘commercial transaction’ under § 12-120(3) or whether the appeal was brought 

or defended unreasonably under § 12-121.” Caldwell v. Cometto, 151 Idaho 34, 41, 253 P.3d 

708, 715 (2011). No attorney’s fees are awarded to the Respondents. 

VI. CONCLUSION

Because there was a genuine issue of fact as to whether the entire $1,100,000 was 

intended to be a capital contribution, the district court improperly granted summary judgment. 

Therefore, the decision of the district court granting summary judgment is vacated and the case is 
14

remanded for further proceedings in accordance with this Opinion. No issue was raised in this 

appeal regarding the attorney’s fees and costs awarded in the lower court against Teton View.

Chief Justice BURDICK, Justices EISMANN and HORTON, CONCUR.

J. JONES, J., specially concurring.

I concur in the Court’s opinion in all respects. Although not necessary to the decision of 

the issues presented on appeal, it is worth observing that a litigant’s interests are not always best

served by taking an all-or-nothing approach in the litigation. That appears to have been the 

situation in this case. Had Idaho Development not taken the position that the entire $1,100,000 

paid to Teton View was a loan, it would likely have fared much better in district court. Based on 

the facts contained in the record, Idaho Development could have presented a strong case that its 

loan to Teton View was initially in the amount of $800,000 and that the loan was subsequently 

amended to $850,000. The documentation provides substantial support for this view. A loan of 

$850,000, which would result in an equity contribution of $250,000, would be difficult to 

dispute. By trying to extend its secured interest to the entire $1,100,000, Idaho Development 

simply overplayed its hand. By taking an all-or-nothing posture in the litigation, Idaho 

Development muddled its message and jeopardized what appeared to be a legitimate claim to 

secured priority for the $850,000 amount. If the entire $1,100,000 was a loan, that would leave 

the company with no equity. The district court appears to have been frustrated by this all-ornothing position, resulting in the characterization of the entire payment as equity.

On the other hand, the respondents have not ultimately benefitted by asserting an all-ornothing position on their own behalf. Had they recognized the implausibility of the entire 

payment to Teton View being characterized as an equity contribution, and offered some proof as 

to how the payment should be divided between the equity pot and the loan pot, they may well 

have fared somewhat better.

On remand, the parties will have an opportunity to dispense with their all-or-nothing 

positions and present a more realistic picture to the district court. They would be well advised to

do so.